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TMI Blog2015 (6) TMI 450X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 2(22)(e)(ii). - Decided in favour of assessee - ITA No.3418/Mum/2012,CO No.117/Mum/2013 - - - Dated:- 1-6-2015 - Shri I P Bansal Shri Rajendra,JJ. For the Petitioner: Shri Asghar Zain For the Respondent: Shri K Shivaram ORDER Per I P Bansal, Judicial Member The appeal is filed by the Revenue and the cross-objection by the assessee. Both are directed against the order passed by the CIT(A) dated 19.03.2012 for A.Y. 2006-07. 2. The grounds of appeal raised by the Revenue read as under: 1. On the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in deleting the addition of ₹ 1,09,38,061/- made by Assessing Officer under section 2(22)(e) of the Act. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition made by the Assessing Officer without appreciating the fact that the M/s. Silgo Finance Pvt. Ltd. (the lender company was not engaged in the business of money lending as it has not shown any interest income, as observed by the Assessing Officer in his order and hence the assessee s case is not covered within the exception in clause (ii) of section 2(22)(e) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er related activities. Since, it was the main object of Silgo to advance the loan, which is normal and ordinary activity, the payment received from Silgo would be exempted from including the same to the income of the assessee u/s. 2(22)(e) of the Act. It was submitted that out of the total funds available with Silgo, 75.72% were deployed in the loans given by it. Reliance was placed on the decision of Hon ble Bombay High Court in the case of CIT vs. Parle Plastics Ltd. [332 ITR 63] to contend that if the lending of money constitutes substantial part of business of the company, then the loan given by the company to its share holders cannot be considered to be deemed dividend under the provisions of section 2(22)(e) as the same fall under the exception mentioned in section 2(22)(e)(ii). The learned CIT(A) based on the facts that the Silgo has deployed 75.72% of its available funds in the shape of loans and advances, has held that lending of money constitute substantial part of the business of the lending company and, thus, the amount received by the assessee from Silgo could not be assessed as deemed dividend u/s. 2(22)(e). The Revenue is aggrieved by the said decision of the CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order of the CIT(A) is in accordance with the decision of the jurisdictional High Court. It was pleaded by the learned AR that order passed by the CIT(A) should be upheld. Ld. AR further submitted that the cross-objection of the assessee is regarding the exclusion of the opening balance as well as the interest portion and the same is also in accordance with the aforementioned decision of Hon ble Bombay High Court in the case of Parle Plastics Ltd. (supra) and in case the main contention of the assessee is not accepted that lending money was substantial part of the business of the lending company, then relief to the extent claimed in CO should be allowed to the assessee and if the order of the CIT(A) is upheld then the assessee s cross-objections will become infructuous. 7. We have heard both the parties and their contentions have carefully been considered. On pages 2 3 of paper-book the assessee has filed Memorandum of Association of Silgo, wherein the main object of the company has been stated at Sr. No.1, which reads as under: 1. To carry on the business of rendering of financial services other related activities. The funds available with the assessee company in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 5.02 crore. Thus substantial deployment of funds by Silgo is on loans and advances. It is true that assessee company did not earn interest income, but it has claimed interest expenses to the tune of ₹ 15.59 lacs. That may be due to the fact that there may be debit and credit of the interest and net amount has been shown as expenditure amounting to ₹ 15.59 lacs. But the fact remains that out of total funds available with Silgo, more than 75% are deployed in loans and advances. It is on this basis, the learned CIT(A) has arrived at a conclusion that the amount received by the assessee from Silgo cannot be considered as deemed dividend because of the exclusion by clause (ii) to section 2(22)(e). Clause (ii) to Section 2(22)(e) read as under: any advance or loan made to a shareholder by a company in the ordinary course of its business, where the lending of money is a substantial part of the business of the company. 8. Now the question remains that whether on the basis of deployment of funds, can it be held that money lending was substantial part of business of Silgo? This question has been answered by Hon ble Bombay High Court in the case of Parle Plastics Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the meaning of the word substantial , appearing in the expression substantial part of the business . Stroud's Judicial Dictionary, Fifth Edition, gives the first meaning of the word substantial as A word of no fixed meaning, it is an unsatisfactory medium for carrying the idea of some ascertainable proportion of the whole . The decision of Terry's Motors Ltd. v. Rinder [1948] SASR 167 is given in support of this meaning. In the meaning No. 8, while considering substantial amount , it is stated that out of a rent of 80 per annum, 13 per annum attributable to the amount paid for furniture, was a substantial amount, on the basis of the decision in Maclay v. Dixon C. A. 170 L T 49. In meaning No. 15, relying upon the decision of Ladbroke (Football) Ltd. v. William Hill (Football) Ltd. [1964] 1 WLR 273 (HL), it is said that in deciding whether the reproduced part of copyright material is a substantial part of the whole, it is the quality rather than the quantity of the part that should be considered. Black's Law Dictionary, Sixth Edition defines the word substantial as Of real worth and importance ; of considerable value ; valuable. Belonging to substance ; ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the profit would be the single largest part of the business of the company, the second and third divisions of the business, each of which contributes 30 per cent. of the turnover as well as profit of the company, though not the major and not even the single largest part of the business of the company, would still be a substantial part of the business of the company, because if any part of the three divisions of the business of the company was to be closed down, that would result in loss of turnover and/or business of 30 per cent., ordinarily no company would regard such part of the business as insignificant. As rightly observed in Stroud's Judicial Dictionary, it is not possible to give any fixed definition of the word substantial in relation to a substantial business of a company . Any business of a company which the company does not regard as small, trivial, or inconsequential as compared to the whole of the business is substantial business. Various factors and circumstances would be required to be looked into while considering whether a part of the business of a company is its substantial business. Sometimes a portion which contributes a substantial part of the turnover, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the business of AMPL. The Income-tax Appellate Tribunal has also held that the income AMPL had received by way of interest of ₹ 1,08,18,036 while its total profit was ₹ 67,56,335,. Excluding the income earned by AMPL by way of interest, the other business had resulted into net loss. In our view, the Income-tax Appellate Tribunal has taken into consideration the relevant factors and has applied the correct tests to come to the conclusion that lending of money was a substantial part of the business of AMPL. Since lending of money was a substantial part of the business of AMPL, the money given by it by way of advance or loan to the assessee could not be regarded as a dividend, as it has to be excluded from the definition of dividend by virtue of clause (ii) of section 2(22)(e) of the Act. Hence, question No. 2 is answered in favour of the assessee and against the Revenue. In the present case, it has already been mentioned that more than 75% of the funds available have been deployed by Silgo, therefore, money lending constituted substantial part of the business of Silgo and the fact that no interest income was shown by Silgo in Profit loss account cannot be said to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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